Lending money: the amending law will limit the interest and duration of loan agreements and modernize the sector

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The recently enacted Consumer Credit (Amendment) Act 2022 (the “Law” – here) will set a cap on the interest rates charged by “high-cost credit providers” (that’s to say loan sharks), limiting the maximum duration of a loan contract and modernizing the industry more generally. The law was promulgated on June 29, 2022 but is awaiting an entry into force decree from the Minister of Finance. This information note describes the main proposed changes that should be of interest to the money lending industry.

What significant changes are proposed by the Act?

Interest Rate Ceiling: The law allows the Minister of Finance to set the maximum interest rate at which a “high cost” loan can be offered. The maximum rate will be imposed in separate regulations to be made by the Minister (after consultation with the Central Bank of Ireland) in accordance with prescribed principles and policies. Although the Minister has the discretion to specify the interest rate, this discretion is subject to a maximum ceiling of 1% per week or 48% per annum (except in relation to a “current account” where the ceiling is 2.83% per month).

Maximum duration: In the case of high-cost credit provided as a loan (rather than a current account), a maximum term of 52 weeks (that’s to say 1 year) applies.

Offences: The scope of potential offenses for breach of loan law is expanded to include the new provisions implementing the above interest rate cap and maximum term.

Other important changes: The law will change several other aspects of the regulation of moneylending businesses, including:

  • replacing terms such as “lender”, “lending money” and the like with “high cost credit provider”, “high cost credit” etc;
  • prohibit high-cost credit providers from charging for collection services;
  • streamline the licensing regime so that licenses:
    • are granted for five years (instead of one year); and
    • can be obtained on a nationwide basis (rather than applying in each district court area in which the money lending is to take place);
  • require high-cost credit providers to offer consumers the choice of having the required repayment booklet in paper form or in another durable medium (such as an electronic format). The repayment booklet must also specify the total cost of the loan both in euros and as a percentage of the amount borrowed;
  • ensure that agreements prominently contain the words “High Cost Credit Deal”; and
  • granting the Central Bank greater discretion in granting or renewing a license.

Comment

The Consumer Credit (Amendment) Act 2022 represents a significant change in the moneylending industry. While the simplified licensing regime will be of great benefit to approved lenders, the law largely creates new obligations that they will need to ensure are met. Although the law is not yet in force, pending a coming into force order from the Minister, all lenders should take steps now (if they have not already done so) to ensure that they will comply with the effective date of the law. This will involve updates to standard documentation, assessment and modification of existing processes (particularly around interest rates and collection fees) and a general review of existing business models to ensure that they will remain compliant and viable.

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